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Blog Post | May 11, 2020

Will Biden Rein in Private Equity’s Hold on Healthcare?

2020 Election/TransitionPrivate Equity

Private equity firms play an increasingly central role in financing the healthcare industry. These firm’s investments in healthcare include everything from hospitals to ambulance transport companies to specialized medical services. The industry’s encroachment into healthcare is increasing costs, especially in circumstances where patients have few choices and are in need of immediate medical attention. 

Private equity’s ubiquity in emergency healthcare infrastructure is contributing to the severity of the COVID-19 crisis. As the country’s fractured and privatized healthcare system buckles it continues to prioritize the profits of CEOs and investors over sick patients and exhausted medical workers. 

Major private equity firms with healthcare holdings like Blackstone and Bain Capital have donated considerable sums of money to Joe Biden’s presidential campaign. The industry’s clear attempts to “buy” favorable policies are worrisome as the pandemic renders the fragility of a private equity-backed healthcare system grotesquely clear. Without political pressure, a Biden cabinet could see private equity-affiliated donors becoming the nation’s next executive branch appointees.

Why is a private equity-backed healthcare system problematic? 

In the healthcare industry, private equity’s acquisitions are increasingly cornering the market on specialized medical services and procedures. These buyouts have created “captive consumers” who are forced to patronize private equity-backed physicians, often without knowing they are doing so. Patients around the country have received out-of-network “surprise bills” after having unknowingly been treated by physicians employed by medical staffing firms, even when they visit in-network facilities. Previous physician offices were unwilling to take advantage of patients this way. Thus, private equity extracts greater profits not through greater efficiency or medical innovation, but by their willingness to extract money when patients are at their most vulnerable. 

The industry’s targeted investment in emergency medical infrastructure, like freestanding ERs and emergency transport services, is a revealing strategy. Private equity’s “roll up” of physician’s offices into consolidated umbrella companies, has turned once local medical practices into national chains that are spreading an unstable and expensive healthcare model across the country.

Meanwhile, firms are increasingly investing in the life sciences and biotech industry, as private equity gears up to become the next biggest investor in big pharma. These investments raise regulatory concerns as investors’ expectations of quick profits may conflict with the lengthy timeline necessary for safe drug production. Big Pharma watchdogs worry that private equity is laying the foundation to corner the market on cancer treatment and other rare diseases. The rapacious ownership of pharmaceutical patents is already problematic, and the notion of awarding private equity these monopoly rights is worrisome.

In yet another arena, the industry’s growing interest in primary care could destabilize the healthcare system’s very foundation. 

The bottom line is that private equity’s widespread investments in the healthcare industry yield big profits for investors, CEOs, and portfolio managers, while patients and medical providers face instability and high costs.

Private Equity Worsens the COVID-19 Response

The severity of the coronavirus pandemic is only worsened by private equity’s ubiquitous investment in emergency healthcare infrastructure. Covid patients treated in private equity-backed emergency rooms and medical staffing firms are likely to continue receiving expensive medical bills. As 26 million Americans face unemployment, many patients could be left to pay these bills without insurance. 

In Philadelphia, PA millionaire and private equity executive Joel Freedman used his firm’s recent acquisition of Hahnemann University Hospital, as a bargaining chip to negotiate high rent with city officials desperate to increase hospital beds. City officials eventually gave up on negotiations as they were unable to afford Freedman’s offer of $1 million dollars per month

Nursing homes around the country are fighting the pandemic with reduced staff thanks to private equity’s dominance in this industry. Even under normal conditions, private nursing home ownership has been shown to lead to measurably worse outcomes for patients’ health, safety, and wellbeing. Now in a time of crisis, it’s even more deadly. 

Private equity-backed medical staffing firms are also bad for the people they employ. Companies like Alteon Health are suspending paid time off, reducing clinician hours, and slashing compensation for emergency medical workers as they treat patients with Coronavirus.  

Meanwhile, even as it contributes to the healthcare fragility that is exacerbating the pandemic, the private equity industry is lobbying executive branch appointees for a piece of the 2 trillion dollar stimulus package. Some private equity-backed medical facilities, like Easton hospital in Pennsylvania, have already received millions of dollars in relief funds. The debt-driven financing model behind hospital chains like Steward Health Care (Easton’s parent company) has destabilized regional hospital systems, putting thousands of medical workers and communities at risk of sudden hospital closures in the midst of the crisis.

As a textbook example of disaster capitalism, private equity firms may emerge from the pandemic with increased portfolios as they use their combined 2.5 trillion dollars in cash to acquire businesses that are struggling due to the virus. Without proper oversight, private equity’s extractive practices could become even further entrenched into the healthcare system. 

Biden’s Ties to Private Equity 

Joe Biden has significant ties to the private equity industry. The financial sector represents 23% of Biden’s overall bundlers. 43% of Biden’s financial sector bundlers are private equity executives, portfolio managers, and their corporate lawyers. Bundlers, who can collect thousands if not millions of dollars for political candidates, are particularly important indicators for the composition of a president-elect’s administration and, thus, for the direction of its policies. 

As Biden lagged in small grassroots donations compared to progressive candidates like Senators Elizabeth Warren and Bernie Sanders, nine of Biden’s private equity bundlers stepped forward to help. Richard Blum, Chairman and President of the private equity firm Blum Capital, held a fundraiser for Biden with his wife, Senator Dianne Feinstein, at their home in San Francisco. Blum also personally donated 1 million dollars to the Biden-affiliated SuperPAC, Unite The Country. 

More recently, Alex Katz — Vice President of government relations at Blackstone — co-hosted a Manhattan fundraiser last January with corporate lawyers and executives from the financial, oil and gas, and pharmaceutical industries. While the sum of money that has run through private equity bundlers to the campaign remains unknown, by helping to keep the campaign afloat the sector may well have secured a huge stake in the presidential hopeful’s candidacy. 

RDP’s analysis of Federal Election Commission (FEC) data show that individual campaign contributions from private equity-affiliated donors total over $367,000. Thirty-seven of Biden’s private equity donors work at Blackstone. One of the company’s holdings, TeamHealth, is among the biggest in the business when it comes to private equity-backed emergency healthcare. This sprawling medical staffing firm uses the threat of sending expensive “surprise bills” to covered patients to leverage higher fees from insurance companies (which ultimately is passed back onto the insured). This bargaining increased reimbursement rates for TeamHealth’s physicians by an average of 68% compared to previous ER doctors. 

When low income patients struggled to pay these high emergency medical bills, TeamHealth sued them in court. From 2017 to 2019, Southeastern Emergency Physicians, a subsidiary of TeamHealth filed 4,800 lawsuits against patients in just one county in Memphis, Tennessee. 

Employees from Bain Capital, another major private equity firm, donated nearly $20,000 to Biden’s presidential campaign. Bain has a range of holdings in the healthcare sector. It has made investments in behavioral health facilities and privatized technological pieces of the healthcare industry like medical records platforms and healthcare payment systems. The firm has honed in on big pharma creating a 270 million dollar fund that will exclusively focus on acquisitions in the life sciences industry. As an indicator of this shift, Bain Capital purchased 350 million dollars in neuroscience assets from Pfizer and created Cerevel, a biopharmaceutical company focused on developing drugs to treat disorders of the central nervous system. 

Similarly, Blackstone’s recent acquisitions of Clarus, a life sciences investment firm, signals private equity’s growing interest in the pharmaceutical industry. If these firms’ previous investments in healthcare are any indicator, their foray into pharmaceuticals could corner the market on life saving drugs and keep them out of reach for low income patients. 

These campaign contributions are a worrisome sign that private equity’s influence could flow freely through the executive branch, and deeper into an already fragile healthcare system. 

How Biden Could Curb Private Equity’s Destabilization of Healthcare 

The private equity sector appears to have a solid hold on Joe Biden, but he can still prove otherwise. If elected president, Biden could take several steps to  curb the industry’s harm. Here are three suggestions:

  1. Appoint personnel to the Fed who think federal bailouts should benefit workers, small businesses, and hospitals, not enrich private equity investors 

The Federal Reserve’s 2.3 trillion dollar loan program, which is mainly intended for businesses under 10,000 employees, is also available to private equity firms.  While Fed Chair Jerome Powell asserted that the “country’s highest priority must be to address this public health crisis [and] provi[de] care for the ill […]” there are no firm regulations in place to prevent the private equity sector from hijacking these funds for their own financial gain. With no conditions attached to these loans, private equity firms could do anything from using the capital for more leveraged buyouts or simply circulate the money to investors even as businesses fail. Progessive appointees to the Federal Reserve Board of Governors could attach stricter conditions to future economic bailouts that ensure private equity won’t exploit federal loan programs for their own financial gain.

  1. Provide the Federal Trade Commission with more resources and tighter regulation to monitor and investigate physician acquisitions

Under current legislation, the culprits of surprise billing are able to quietly exacerbate market concentration with the acquisition of small group practices and physician hires that do not require notification to antitrust regulators. When the staffing firm finally enters the FTC’s radar, their reach could already be regional and the healthcare system likewise destabilized. 

A group of researchers at the Kellogg School of Management has suggested that lowering the dollar threshold that triggers a notification to the FTC could help regulators slow the stealth consolidation of physician practices (not to mention in emergency rooms, nursing homes, and other healthcare infrastructure). With an increased caseload, the FTC would also need additional resources to choose, investigate, and challenge acquisitions that cross the new thresholds.  

Competent appointees with more resources and regulatory tools at their disposal could alert the public about consolidation in medical staffing firms sooner and stop private equity’s quiet construction of large medical chains faster. 

  1. Better regulation of big pharma

If private equity drives up the price of drug treatments for life threatening diseases, the federal government could deploy section 1498 of the federal code that allows for the “eminent domain for patents”. Although seldomly used, this law can override the exclusivity rights of certain pharmaceutical companies when their high prices pose a real threat to the public’s health. Federal agencies like the Department of Health and Human Services (HHS) have discussed the application of this law in the past. The then-secretary of HHS’s mere consideration of deploying section 1498 during the 2001 Anthrax scare goaded Bayer into reducing its prices by half.  Future use of this law by the HHS could allow generic manufacturers to produce drugs that are controlled by private equity-backed pharmaceutical companies and dissuade the industry from setting its prices too high. 

While the Fed, FTC, and HHS hold considerable power to curb private equity’s influence in healthcare, they are not the only executive agencies to consider. The industry’s investment in healthcare is so extensive that this blog post alone cannot comprehensively reflect its reach. Other agencies like the Centers for Medicare and Medicaid (CMS) are also relevant in regulating private equity’s growing acquisition of nursing homes.

The Big Picture 

Private equity is creating a costlier and crueler healthcare system. With a combined 10.4 billion invested in hospitals and clinics alone, the sector’s acquisition of medical infrastructure is only increasing.  

If Biden is elected president he will inherit a stressed and struggling healthcare system that is deeply intertwined with the private equity industry. While he will have numerous options to curb private equity’s power, there is reason to believe that he will be hesitant to do so without significant outside pressure. 

With legislative acts to rein in issues like surprise billing dying in Congress, it is imperative that the next leader of the executive office use the tools at his disposal to rein the sector in. Without bold actions, the most vulnerable in the country will continue to suffer under the weight of an industry with a known track record of greed. 

2020 Election/TransitionPrivate Equity

More articles by Mariama Eversley

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